Crude oil prices are trading sharply lower in futures market on Monday as China’s economic slowdown dented the outlook for demand and traders are placing record bets on even lower prices as they increasingly lose faith in a significant market recovery.
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On Monday, turbulence gripped Chinese markets once again, as blue-chip stocks fell by another 5 percent and overnight interest rates for the yuan outside of China soared to almost 40 percent, their highest since the launch of the offshore market. Technical and momentum selling added fuel to the selloff. The bank said it expects to see global oil demand expanding at a brisk pace on lower oil prices as the Iranian barrels start hitting the market. “Implied oil demand in China contracted 4.9 percent (537,300 thousand bpd) month on month and 2.0 percent (216,700 thousand bpd) year on year in November, the first decline since July 2014”, Barclays bank said in a note on Friday.
Last week, the WTI-Brent spread widened by more than 60%.
Brent crude futures were down by 47 cents at $33.08 a barrel by 0935 GMT, off 15 percent in a week, while U.S. West Texas Intermediate (WTI) crude was down 52 cents at $32.64 per barrel.
Oil fell below $33 a barrel yesterday for the first time since April 2004 as the slide in Chinese shares rattled investors already concerned by near-record production and massive stockpiles of unwanted crude and refined products.
“The market has been able to recover on bargain hunting at the lower levels, suggesting its sufficiently oversold to shift into consolidation mode, but we see the market as remaining fundamentally fragile, with the return of Iranian barrels now held back by sanctions still to come”, Evans said.
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The fierce selling triggered a renewed scramble to buy options betting on a further slide, sending the CBOE volatility index, a gauge of options premiums based on moves in the U.S. oil exchange traded fund, over 13 percent higher to more than 63 – close to its highest level in seven years. The markets are positioned in a way where “traders are afraid to be long”, said Clayton Vernon, a trader and economist with Aquivia LLC in New Jersey. Whilst this has contributed to further geopolitical uncertainties, it is unlikely that it will have a sustained impact on oil prices.
